Pension taxation 2025: This is how the change affects you!

Pension taxation 2025: This is how the change affects you!

The taxation of pensions has been a much-discussed topic in Germany for years. Pensions from statutory pension insurance have been subject to downstream taxation since 2005. In contrast to employees, there is no automatic tax deduction for pensions. The German pension insurance does not deduct any taxes from the pension and does not pass any money on to the tax office. This regulation affects not only old-age pensions, but also pensions due to reduced earning capacity and survivors' pensions.

There is currently a transition phase to full downstream taxation, which will take effect gradually until 2058. Anyone who retires in 2024 will have a tax rate of 83% and a pension allowance of 17%. Anyone who retires in 2025 will already have to pay tax on 83.5% of their pension. From 2058 onwards, pensions will generally be fully taxable. Although pensioners are taxable, they do not automatically have to pay taxes. More and more pensioners are obliged to submit a tax return in order to clarify their taxable share.

Tax details

The tax office plays a central role in calculating the taxable portion of the gross pension, with the adjustment amount, which relates to the annual pension adjustments, being an important basis. Relevant data is automatically transmitted by the German pension insurance to the tax office. Pensioners do not have to provide statutory pension data in their income tax return, but are required to submit an income tax return with Appendix R.

For pensions starting up to December 2005, 50% of the gross pension was taxable. The taxable share increased by two percentage points annually until 2020 and by half a percentage point thereafter. For example, a pensioner who received a gross pension of 12,000 euros in 2005 has a pension allowance of 6,000 euros. Although her gross pension increased to 16,905 euros in 2023, the taxable part of her income remains 10,905 euros because she does not have to pay taxes due to the basic tax allowance.

Optional regulations and opening clause

There is also an opening clause that allows exceptions to “subsequent taxation” in the case of high pension insurance contributions. To use this option, pensioners must provide relevant information in their income tax return and provide relevant evidence. Certificates for the opening clause can be applied for from the pension insurance or professional pension funds.

In summary, the taxation of pensions in Germany is a complex system that takes many aspects of pension insurance into account. The gradual implementation of deferred taxation creates numerous challenges for retirees who need to understand and meet their tax obligations. The tax treatment of pension income depends crucially on the year in which retirement begins. For further information on the topic, we recommend taking a look at the official information from German pension insurance and the current reports chip.